Archive for the ‘Behavior Eco/Fin’ Category

Behavioral economics of unemployment and obesity

May 15, 2014

Nice article in WaPo (HT: MR blog).

It looks at this side-effect of rising unemp – rise in obesity. People are depressed on being unemployed and start eating:

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Road Safety – Choice Architecture in Sweden..

May 15, 2014

This blog had earlier pointed to this fascinating story on how Sweden managed to lower its road accidents and deaths.

Gulzar adds to the discussion from a behavioral perspective. He is mostly alert to the various nudges being implemented around the world:

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Economics of apologies…

May 13, 2014
Ben Ho  of Vassar College has this nice and different voxeu piece on economics of apologies.
Using beh eco ideas, he says apologies given with intent can be really powerful:

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Is enonomic performance mostly about telling macro stories effectively?

March 24, 2014

The behavioral impressions and biases are not just limited to micro behavior. They seem to be aggregating to macro level as well.

Robert Shiller in his recent piece says much of Japan’s recent revival is based on a powerful economic narrative:

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Think MBA Students Are Arrogant? Blame Their Narcissistic Teachers…

March 6, 2014

Narcissism  means to be self obsessed and apparently there is research going on this topic. The research has shifted from narcissistic executives who take higher risks in order to glorify themselves. Now the research has shifted to MBA students too.

Paatrick Clark at BW reports:

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Don’t believe the hype about behavioral economics..Really?

January 28, 2014

Allison Schrager a NY based economist says beh eco is mainly hype.

She says beh eco has not delivered the expected results:

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Keeping New Year’s resolutions…Some Behavioral insights..

January 1, 2014

The usually brilliant Cass Sunstein shares insights from recent research on human behavior (predictably irrational).

He says new year resolutions are like redemption coupons which people fail to redeem despite the apparent monetary benefits:

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Why insurance is the most misunderstood industry?

December 20, 2013

Wharon Profs.  Howard C. Kunreuther and Mark V. Pauly, have co-authored a book titled, Insurance and Behavioral Economics: Improving Decisions in the Most Misunderstood Industry.

In this interview, they say why insurance is the most misunderstood industry. Some think it like investments, others do not insure as events are low probability:

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Oscar awards to movies/actors giving behavioral economics insights..

December 19, 2013

A terrific post by Cass Sunstein. He gives Oscars to movies which have beh econ insights (HT: MR Blog).

He gives the awards for Best – Actor, Actress, Director and Picture..

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Shiller vs. Fama at Economics Nobel ceremony

December 11, 2013

The Prize lectures are up. We have both youtube videos and pdf slides.

Starts with Fama saying he does not know what a bubble is and Shiller defining a bubble..

Have just started watching…Superb stuff..Debate on financial markets at its best..

Britain’s Ministry of Nudges..

December 9, 2013

A brilliant column in NYT by Katrin Benhold on UK’s behavioral insights team. She points to anecdotes which led to formation of the team, the key questions it is asking and some recent successes.

I did not know unemployed people being nudged to write about their jobless experiences get a job faster:

A 24-year-old psychologist working for the British government, Mr. Gyani was supposed to come up with new ways to help people find work. He was intrigued by an obscure 1994 studythat tracked a group of unemployed engineers in Texas. One group of engineers, who wrote about how it felt to lose their jobs, were twice as likely to find work as the ones who didn’t. Mr. Gyani took the study to a job center in Essex, northeast of London, where he was assigned for several months. Sure, it seemed crazy, but would it hurt to give it a shot? Hayley Carney, one of the center’s managers, was willing to try.

Ms. Carney walked up to a man slumped in a plastic chair in the waiting area as Mr. Gyani watched from across the room. The man — 28, recently separated and unemployed for most of his adult life — was “our most difficult case,” Ms. Carney said later.

“How would you like to write about your feelings” about being out of a job? she asked the man. Write for 20 minutes. Once a week. Whatever pops into your head.

An awkward silence followed. Maybe this was a bad idea, Mr. Gyani remembers thinking.

But then the man shrugged. Why not? And so, every week, after seeing a job adviser, he would stay and write. He wrote about applying for dozens of jobs and rarely hearing back, about not having anything to get up for in the morning, about his wife who had left him. He would reread what he had written the week before, and then write again.

Over several weeks, his words became less jumbled. He started to gain confidence, and his job adviser noticed the change. Before the month was out, he got a full-time job in construction — his first.

Superb stuff….

It started from America, showed some policy success in UK and now being looked upon in America:

Uptake of nudging can be slow. In the United States, President Obama appointed Mr. Sunstein as head of the Office of Information and Regulatory Affairs in 2008. Mr. Sunstein’s job was to oversee new regulations, make older ones smarter and scrap those that didn’t work well. Among the successes, as outlined in his latest book, “Simpler,” were simplified mortgages, fuel-economy labels for cars and calorie counts on menus in chain restaurants.

Now experiments seem ready to become part of American policy-making as well. Maya Shankar, a senior policy adviser at the White House Office of Science and Technology Policy, has been building a new social and behavioral science team inspired in part, she said, by the savings achieved in Britain. Her team wants to use such “evidence-based policy-making,” she said, so that “government services are efficient, effective, and serve the needs of the American people.”

Convinced that there is a wider market for such programs, Mr. Cameron is spinning off the nudge unit into an entity free to advise companies and other governments on social projects. Its main clients will remain the Cabinet Office, which has offered a five-year contract, and other British government departments.  A nonprofit research institution is favored to become the team’s partner.

Nudging will never replace traditional public policy, said Mr. Halpern, the nudge unit’s director. Paraphrasing Oliver Letwin, a cabinet minister, he said: “No one is proposing removing the law against murder and replacing it with a nudge.”

But behavioral insights can improve many policies he said. “It’s when this is generalized that we could be talking about billions,” he said.

Hmmm… Need to keep updated over the policy findings of BI team via their blog.

Prof. Kahneman on How to Control Irrational Tendencies

December 5, 2013

Big Think has this video and a brief write-up on the topic and mental accounting.

Prof. Kahnemann explains:

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Nudging is a continuous process..

November 22, 2013

Nudging people into making the right choices is a continuous process. One cannot simply make one nudge and hope it will work. People are predictably irrational and get still confuses and make the wrong choices.

I just noticed this at IIM Bangalore (example of another nudge posted earlier). Now here  we have twp kinds of dustbins spread across the campus. Something like these with just green and red colors.

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Singapore “nudging” (silently) people for better financial well-being…

October 28, 2013

Mr Tharman Shanmugaratnam, Chairman of the Monetary Authority of Singapore (MAS), does not mention the word nudge/behavioral finance in this speech but one can read it everywhere.

The speech is about how MAS is planning to improve the financial well-being of the Singaporeans. They are also seen as poster children of neo-classical policies which believes in the rational consumer. One would usually imagine that people from this rich country would be rational and better at financial planning. MAS findings does not really show this :

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What behavioral economics is and what it is not..

October 24, 2013

Matthew Darling, Saugato Datta, and Sendhil Mullainathan write a short note on what behavioral economics stands for.

There are more and more articles, books and websites explaining behavioral economics. But we’ve noticed something in our conversations. As people learn more about behavioral economics, misconceptions creep in. There are three misperceptions we see quite frequently: 
 “Behavioral economics is about controlling behavior…”
 “Behavioral economics is liberal (or conservative)…”
 “Behavioral economics is about ‘irrationality’…”
Just as a sculptor must chip away every part of a rock that is not an elephant, it may be useful to define behavioral economics by what it is not.

Beh eco is not about these three claims:

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Interview of Prof. Richard Thaler..

October 23, 2013

Minneapolis Fed’s Region mag has this terrific interview of Prof. Richard Thaler.

The interview as expected questions the basis of the rational school. It is full of anecdotes over how he met Kahneman/Tversky, his struggle to get into mainstream economics, his venture into behavioral finance (he never imagined that it will be finance where behavioral theories  will have the maximum impact, his disagreements with Fama and so on.

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What it is like to attend Prof. Shiller’s class and his India connection..

October 16, 2013

Monica Halan of Mint was a Yale World Fellow in 2011 had the privilege to attend Prof Shiller’s class.

She narrates her experience which looks like lot of fun.

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Post 2013 Economics prize.. Will we see behavioral finance becoming a core course?

October 15, 2013

The mind is overjoyed on hearing that finally Prof. Shiller has won the coveted award. This blog is a big fan of behavioral economics/finance and keeps looking at research/events which show exciting applications of the field.

He along with a few behavioral guys have withstood this pressure from the rational/classical school of finance for many years now. One thought post 2002 prize to Kahneman one would see rise of behavioralistas  but this did not really happen. One continues to see the econ/fin schools being dominated by the rational world. Interestingly, the Fisher Black medal for 2013 given to top finance economists was also given to Ulrike Malmendier, a behavioral finance prof at UCB.

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Can we predict asset prices even over a long-term?

October 15, 2013

The committee releases superb summaries of  works of winners of “The Prize”. This year is no different.

I have so far only read the popular version as adv version is too detailed.

The popular version begins like this:

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Behavioral economics and RBI’s move to ban zero financing on consumer durables…

September 27, 2013

RBI recently banned banks from offering 0% EMIs on consumer durable products. It also asked various merchants not to deduct a fee while someone pays from his debit card. It is nothing new and RBI had asked banks to stop this practice even earlier.

In the zero percent EMI schemes offered on credit card outstandings, the interest element is often camouflaged and passed on to customer in the form of processing fee. Similarly, some banks were loading the expenses incurred in sourcing the loan (viz DSA commission) in the applicable RoI charged on the product. Since the very concept of zero percent interest is non-existent and fair practice demands that the processing charge and RoI charged should be kept uniform product/segment wise, irrespective of the sourcing channel, such schemes only serve the purpose of alluring and exploiting the vulnerable customers. The only factor that can justify differential RoI for the same product, tenor being the same, is the risk rating of the customer, which may not be applicable in case of retail products where the RoI is generally kept flat and is indifferent to the customer risk profile.

Though many banks have appreciated our concerns and have discontinued with the above mentioned practices/ products, some of them still seem to persist with them. These practices/ products thwart the very principle of fair and transparent pricing of products which beholds customer rights and customer protection, especially, in the more vulnerable retail segment. Such practices thus violate, both in letter and spirit, various provisions of our MC on Interest Rate on Advances and therefore, you are advised to strictly desist from these practices hence forth.

ET has this edit on the move and as always criticises the move (as ET is strongly pro-markets):

The RBI has done immense disservice to industrial growth in the short term by asking banks not to offer popular financing schemes for consumer durables dressed up as zero-interest equated monthly instalment (EMI) schemes. Industrial growth has been extremely weak for an extended period and the forthcoming festival season is an opportunity for assorted consumer durable companies to step up their sales.

The zero-down-payment, zero-processing-fee, zero-interest EMI schemes an increasing number of companies offer on a variety of products are good for both consumers and for companies. The RBI’s move scuppers this opportunity to a large extent.

It is not the case that consumers are unaware that these financing schemes entail real costs on account of interest and documentation. They are aware that credit card-issuing banks charge a financing cost that product companies bear, to tempt consumers with “zero” offers. But this is not their concern. Nor should it be the RBI’s. If the RBI is worried about the rates banks offer, it is welcome to examine the banks’ books and ascertain if any rule is being violated.

Why should the bank regulator interfere with the behavioural economics at work when consumers prefer “zero” finance options on a higher price that bundles financing cost with the product price to the transparency of a lower product price and an explicit overlay of financing cost? Nor are consumers irrational. The cost would be lower, when borne by the company for multiple transactions all together, than when financing is offered to individual consumers.

It says Nor are consumers irrational..Really ET?

Well it seems the lessons from history have been forgotten very quickly. The several Americans who took sub-prime loans also were rational and did not need any intervention. Right? Wrong! The regulator is not interfering with bvevioral economics but is following behavioral economics. The field says we need to nudge when expectations are going crazy..

Further:

The only beneficiary from the RBI’s move is the buyer with sufficient purchasing power to not need a financing scheme, now that the product would be priced lower, taking out the financing cost by which price had been marked up earlier. Product sales and industrial growth would suffer, for the benefit of a tiny elite. This is a fetish for transparency that benefits no one except bean counters at the RBI. The RBI should withdraw these strictures gracefully and wish the economy a Happy Diwali.

Well it is fetish for growth which is the problem. Growth shd come at whatever cost. RBI is trying to not spoil Diwali but prevent Diwala (not literally though)… It is not asking people not to buy products but simply making sure people know the hidden costs. This is something rational people assume are not there but real world shows there is plenty of it..

Behavioral economics has shown the problems with the rational thinking and the crisis showed how rational people are..How many events do we need to debunk the idea of consumer rationality?


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